EXHIBIT 99.1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
Opexa Pharmaceuticals, Inc.
(A Development Stage Company)
Houston, Texas
We have audited the accompanying balance sheet of Opexa Pharmaceuticals, Inc. (a
development stage company), as of December 31, 2003, and the related statements
of expenses, stockholders' deficit, and cash flows for the year ended December
31, 2003. These financial statements are the responsibility of Opexa's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
The financial statements for the period February 16, 2001 (inception) through
December 31, 2002, were audited by other auditors whose reports expressed
unqualified opinions on those statements. The financial statements for the
period February 16, 2001 (inception) through December 31, 2002, include total
revenues and net loss of $0 and $2,972,043, respectively. Our opinion on the
statements of expenses, stockholders' deficit, and cash flows for the period
February 16, 2001 (inception) through December 31, 2003, insofar as it relates
to amounts for prior periods through December 31, 2002, is based solely on the
report of other auditors.
We conducted our audit in accordance with standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Opexa Pharmaceuticals, Inc., as
of December 31, 2003, and the results of its operations and its cash flows for
the year then ended in conformity with accounting principles generally accepted
in the United States of America.
The accompanying financial statements have been prepared assuming that Opexa
will continue as a going concern. As discussed in Note 2 to the financial
statements, Opexa suffered recurring losses from inception and negative cash
flows from operating activities, which raises substantial doubt about its
ability to continue as a going concern. Management's plans regarding those
matters also are described in Note 2. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
MALONE & BAILEY, PLLC
Houston, Texas
www.malone-bailey.com
October 14, 2004
EXHIBIT 99.1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
Opexa Pharmaceuticals, Inc.
(A Development Stage Company)
Houston, Texas
We have audited the accompanying statement of operations, stockholders' deficit,
and cash flows for the year ended December 31, 2002 and for the period from
inception (February 16, 2001) to December 31, 2002 of Opexa Pharmaceuticals,
Inc. (a development stage company). These financial statements are the
responsibility of Opexa's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of its operations and its cash flows for the
years then ended, in conformity with accounting principles generally accepted in
the United States of America.
ERNST & YOUNG LLP
March 7, 2003
EXHIBIT 99.1
OPEXA PHARMACEUTICALS, INC.
(A Development Stage Company)
BALANCE SHEET
December 31, 2003
ASSETS
Current Assets
Cash $ 311,923
Cash - Money Market 1,788,598
Prepaid expenses 41,548
Deposits 25,287
-----------
Total Current Assets 2,167,356
Fixed assets, net of accumulated
depreciation of $228,010 764,216
-----------
TOTAL ASSETS $ 2,931,572
===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities
Accounts payable $ 113,804
Accrued expenses 118,223
-----------
Total Current Liabilities 232,027
-----------
Long Term Liabilities
Deferred rent 58,955
Redeemable Series A Convertible Preferred Stock,
$0.001 par value, 11,500,000 shares authorized,
6,804,349 issued and outstanding 8,352,451
-----------
Total Long Term Liabilities 8,411,406
-----------
Total Liabilities 8,643,433
-----------
Commitments and Contingencies
Stockholders' Deficit
Common stock, $0.001 par value, 20,000,000 shares
authorized, 2,575,625 shares issued and outstanding 2,576
Deferred stock compensation (827)
Additional paid in capital 47,338
Deficit accumulated during the development stage (5,760,948)
-----------
Total Stockholders' Deficit (5,711,861)
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 2,931,572
===========
See accompanying summary of accounting policies and
notes to financial statements.
EXHIBIT 99.1
OPEXA PHARMACEUTICALS, INC.
(A Development Stage Company)
STATEMENTS OF EXPENSES
Years Ended December 31, 2003, and 2002, and
the Period from February 16, 2001 (Inception) Through December 31, 2003
Inception
Through
2003 2002 2003
----------- ----------- -----------
Operating Expenses:
Research & development $ 1,408,904 $ 1,376,029 $ 3,129,413
General & administrative 1,402,009 874,319 2,656,295
----------- ----------- -----------
Total operating expense 2,810,913 2,250,348 5,785,708
----------- ----------- -----------
Operating Loss (2,810,913) (2,250,348) (5,785,708)
Other income (expense)
Interest income 21,406 55,975 78,599
Interest expense -- (30,936) (54,441)
Gain on sale of equipment 602 -- 602
----------- ----------- -----------
Net Loss $(2,788,905) $(2,225,309) $(5,760,948)
=========== =========== ===========
Basic and diluted loss per share $ (1.08) $ (0.89)
Weighted average shares outstanding 2,573,042 2,489,677
See accompanying summary of accounting policies and
notes to financial statements.
EXHIBIT 99.1
OPEXA PHARMACEUTICALS, INC.
(A Development Stage Company)
STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT
Period from February 16, 2001 (Inception) Through December 31, 2003
Redeemable Series A Deferred Additional
Convertible Preferred Stock Common Stock Stock Paid-in Retained
Shares $ Shares $ Compensation Capital Deficit Total
--------- ---------- --------- ------ --------- --------- ----------- -----------
Shares issued
for cash -- $ -- 620,000 $ 620 $ -- $ 5,580 $ -- $ 6,200
for license of
technology -- -- 1,700,000 1,700 15,300 17,000
Net Loss -- -- -- -- (746,734) (746,734)
--------- ---------- --------- ------ --------- --------- ----------- -----------
Balances at
December 31, 2001 -- -- 2,320,000 2,320 -- 20,880 (746,734) (723,534)
Shares issued
for exercise of option -- -- 225,208 225 -- 21,827 22,052
Issuance of Redeemable
Series A Convertible
Preferred Stock
upon conversion of debt 1,843,549 $2,304,436 -- -- -- -- -- --
for cash 4,932,763 6,015,368 -- -- -- -- -- --
Deferred compensation -- -- -- -- (1,518) 1,518 -- --
Amortization of
deferred compensation -- -- -- -- 440 -- -- 440
Net Loss -- -- -- -- -- -- (2,225,309) (2,225,309)
--------- ---------- --------- ------ --------- --------- ----------- -----------
Balances at
December 31, 2002 6,776,312 8,319,804 2,545,208 2,545 (1,078) 44,225 (2,972,043) (2,926,351)
Shares issued
for exercise of option -- -- 30,417 31 -- 2,573 2,604
Issuance of Redeemable
Series A Convertible
Preferred Stock
for cash 28,037 32,647 -- -- -- -- -- --
Deferred compensation -- -- -- -- (540) 540 -- --
Amortization of
deferred compensation -- -- -- -- 791 -- -- 791
Net Loss -- -- -- -- -- -- (2,788,905) (2,788,905)
--------- ---------- --------- ------ --------- --------- ----------- -----------
Balances at
December 31, 2003 6,804,349 $8,352,451 2,575,625 $2,576 $ (827) $ 47,338 $(5,760,948) $(5,711,861)
========= ========== ========= ====== ========= ========= =========== ===========
See accompanying summary of accounting policies and
notes to financial statements.
EXHIBIT 99.1
OPEXA PHARMACEUTICALS, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
Years Ended December 31, 2003, and 2002, and
the Period from February 16, 2001 (Inception) Through December 31, 2003
Inception
Through
2003 2002 2003
----------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(2,788,905) $(2,225,309) $(5,760,948)
Adjustments to reconcile net loss to
cash used in operating activities:
Depreciation and amortization 172,889 53,473 228,812
Amortization of deferred compensation 791 440 1,231
Gain on sale of fixed assets (602) -- (602)
Research and development costs
incurred by issuing common stock -- -- 17,000
Change in:
Prepaid and other assets 22,765 (43,260) (41,548)
Deposits (9,907) -- (25,287)
Accounts payable & accrued expenses (466,546) 584,680 286,463
Deferred rent 47,226 11,729 58,955
Amounts due to related parties (60,954) 47,643 --
----------- ----------- -----------
NET CASH USED IN OPERATING ACTIVITIES (3,083,243) (1,570,604) (5,235,924)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of fixed assets (151,165) (788,873) (993,926)
Proceeds from disposal of fixed assets 1,500 -- 1,500
----------- ----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (149,665) (788,873) (992,426)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings under
convertible notes payable -- 1,250,000 1,750,000
Proceeds from borrowings under notes
payable and convertible note
payable to related parties -- -- 500,000
Sales of common stock 2,604 22,052 30,856
Sales of Series A Preferred Stock 32,647 6,015,368 6,048,015
----------- ----------- -----------
NET CASH PROVIDED BY FINANCING
ACTIVITIES 35,251 7,287,420 8,328,871
----------- ----------- -----------
NET CHANGE IN CASH (3,197,657) 4,927,943 2,100,521
CASH AT BEGINNING OF PERIOD 5,298,178 370,235 --
----------- ----------- -----------
CASH AT END OF PERIOD $ 2,100,521 $ 5,298,178 $ 2,100,521
=========== =========== ===========
NONCASH ACTIVITIES:
Conversion of debt and accrued interest
into Series A Preferred Stock -- $ 2,304,436 $ 2,304,436
Issuance of Common stocks in connection
With license agreement -- -- 17,000
Deferred stock compensation -- $ (1,518) $ (1,518)
See accompanying summary of accounting policies and
notes to financial statements.
EXHIBIT 99.1
OPEXA PHARMACEUTICALS, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS. Opexa Pharmaceuticals, Inc. ("Opexa") (A Development Stage
Company) was incorporated in the State of Delaware on February 16, 2001. Opexa
is engaged in the development of therapies for the treatment of autoimmune
disorders. Opexa is the exclusive licensee to technology developed at Baylor
College of Medicine ("Baylor").
Opexa's activities since incorporation have primarily consisted of acquiring
technology, conducting development activities and raising capital. As a result,
Opexa is considered a "development stage company." Opexa's business is subject
to the risks associated with early-stage pharmaceutical research and
development. These include the risks of development, the uncertainty of clinical
trials and regulatory approvals for products, the uncertainty of market
acceptance for products, risks associated with manufacturing, including
uncertainty of future costs, competition from other pharmaceutical companies and
other products and medical procedures, the uncertainty of patent protection or
possible infringement, and the requirement for resources to find these
activities.
RECLASSIFICATIONS. Certain prior year amounts have been reclassified to conform
with the current year presentation.
USE OF ESTIMATES. The preparation of financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the amounts reported in
the financial statements and accompanying notes. Actual results could differ
from those estimates.
CASH AND CASH EQUIVALENTS. Investments with an original maturity date of three
months or less when purchased are considered to be cash equivalents and are
stated at cost.
REVENUE RECOGNITION. From February 16, 2001(inception), Opexa has been engaged
in research and development activities and has not recognized any revenues.
PROPERTY AND EQUIPMENT. Property and equipment are stated at cost less
accumulated depreciation. Depreciation of property and equipment is computed
using the straight-line method over the estimated useful lives of the assets,
generally three to five years. Amortization of leasehold improvements is
computed using the straight-line method over the shorter of the lease term or
the assets' useful lives. Maintenance and repairs that do not significantly
improve or extend the life of assets are expensed as incurred.
IMPAIRMENT OF LONG-LIVED ASSETS. Opexa reviews the carrying value of its
long-lived assets annually or whenever events or changes in circumstances
indicate that the historical cost-carrying value of an asset may no longer be
appropriate. Opexa assesses recoverability of the carrying value of the asset by
estimating the future net cash flows expected to result from the asset,
including eventual disposition. If the future net cash flows are less than the
carrying value of the asset, an impairment loss is recorded equal to the
difference between the asset's carrying value and fair value.
INCOME TAXES. Opexa accounts for income taxes in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 109, Accounting for Income Taxes.
This statement prescribes the use of the liability method whereby deferred tax
asset and liability account balances are determined based on differences between
EXHIBIT 99.1
the financial reporting and the tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when the
differences are expected to reverse.
STOCK-BASED COMPENSATION. Opexa adopted the disclosure requirements of Financial
Accounting Standard No. 123, Accounting for Stock-Based Compensation (FAS No.
123) and FAS No. 148 with respect to pro forma disclosure of compensation
expense for options issued. For purposes of the pro forma disclosures, the fair
value of each option grant is estimated on the grant date using the
Black-Scholes option-pricing model.
Opexa applies APB No. 25 in accounting for its stock option plans and,
accordingly, no compensation cost has been recognized in Opexa's financial
statements for stock options under any of the stock plans which on the date of
grant the exercise price per share was equal to or exceeded the fair value per
share. However, compensation cost has been recognized for warrants and options
granted to non-employees for services provided. The following table illustrates
the effect on net loss and net loss per share if Opexa had applied the fair
value provisions of FASB Statement No. 123, Accounting for Stock-Based
Compensation, to stock-based employee compensation.
Inception
Through
2003 2002 2003
----------- ------------ -----------
Net loss as reported $(2,788,905) $(2,225,309) $(5,760,948)
Less: stock-based compensation
determined under fair value-
based method (10,810) (59) (10,925)
----------- ------------ -----------
Pro forma net loss $(2,799,715) $(2,225,368) $(5,771,873)
=========== ============ ===========
Basic and diluted net loss per common share:
As reported $ (1.08) $ (0.89)
Pro forma (1.09) (0.89)
The basic net loss per common share is computed by dividing the net loss by the
weighted average number of common shares outstanding. The weighted average fair
value of the stock options granted during fiscal 2003 and 2002 was $0.13 and
$0.02, respectively. Diluted net loss per common share is computed by dividing
the net loss adjusted on an "as if converted" basis, by the weighted average
number of common shares outstanding plus potential dilutive securities. For the
years ended December 31, 2003 and 2002, potential dilutive securities had an
anti-dilutive effect and were not included in the calculation of diluted net
loss per common share.
Variables used in the Black-Scholes option-pricing model include (1) 1.5%
risk-free interest rate, (2) expected option life is the actual remaining life
of the options as of each year end, (3) expected volatility was zero (minimal
value), and (4) zero expected dividends.
RESEARCH AND DEVELOPMENT. Research and development expenses include salaries and
related employee expenses and consulting fees, facility costs, and laboratory
costs. All costs for research and development activities are expensed as
incurred. Opexa expenses the costs of licenses of patents and the prosecution of
patents until the issuance of such patents and the commercialization of related
products is reasonably assured. During 2001, Opexa expensed $17,000 related to
the value of Common Stock issued to Baylor and certain inventors in connection
with a license of technology.
EXHIBIT 99.1
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS. Opexa does not expect the adoption of
recently issued accounting pronouncements to have a significant impact on Opexa
results of operations, financial position or cash flow.
NOTE 2 - GOING CONCERN
As shown in the accompanying financial statements, Opexa incurred net losses of
$2,788,905 and $2,225,309 in fiscal 2003 and 2002, respectively, and has an
accumulated deficit of $5,760,948 as of December 31, 2003. For the year ended
December 31, 2003, Opexa had negative cash flow from operating activities of
$3,083,243. These conditions create an uncertainty as to Opexa's ability to
continue as a going concern. Management is trying to raise additional capital
through sales of common stock. The financial statements do not include any
adjustments that might be necessary if Opexa is unable to continue as a going
concern.
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at December 31, 2003:
Description Life 2003
----------------------- ------- ----------
Laboratory equipment 5 years $ 179,309
Leasehold improvements 3-10 years 635,479
Computer equipment and software 3 years 55,996
Office furniture and fixtures 3 years 121,442
----------
992,226
Less: accumulated depreciation (228,010)
----------
$ 764,216
==========
Depreciation expense totaled $172,889 and $53,473 in fiscal 2003 and 2002,
respectively.
NOTE 4 - COMMITMENTS AND CONTINGENCIES
Opexa leases its office spaces under a ten-year operating lease commencing in
September 2002 and expiring in 2012. The lease payments of this facility
escalate over the life of the lease, and Opexa accounts for these future
escalations by accruing additional rent expense on a straight-line basis to
equalize rent payments over the life of the lease. Opexa also leases a research
facility under an eighteen-month operating lease commencing in June 2003. Basic
rent expenses charged to operations for fiscal 2003 and 2002 was $363,436 and
$123,809 respectively.
Minimum future rental payments under non-cancelable operating leases having
remaining terms in excess of 1 year as of December 31, 2003 for each of the next
5 years and in the aggregate are:
EXHIBIT 99.1
Year Ending December 31,
2004 $ 262,847
2005 197,373
2006 223,005
2007 223,005
2008 223,005
2009 and thereafter 990,707
-----------
Total obligation for future lease payments $ 2,119,942
===========
Opexa is subject to numerous risks and uncertainties because of the nature of
its business and the status of its operations. Opexa maintains insurance
coverage for events and in amounts that it deems appropriate. There can be no
assurance that the level of insurance maintained will be sufficient to cover any
claims incurred by Opexa or that the type of claims incurred will be covered by
the terms of insurance coverage.
NOTE 5 - NOTE PAYABLE
During 2001, an affiliate of Baylor loaned $250,000 to Opexa under various
promissory notes ("Notes"). The Notes bore interest at the prime rate plus 1 %
and had a maturity date of April 15, 2002. Opexa incurred interest expense of
$9,547 and $3,741 during the period from inception (February 16, 2001) to
December 31, 2001 and the year ended December 31, 2002, respectively. During
April 2002, the principal and accrued interest were converted into 210,630
shares of Series A Preferred Stock (see Note 7).
During October 2001, Opexa borrowed $500,000 from third parties ("Third Party
Convertible Notes") and $250,000 from Baylor under convertible notes ("Baylor
Convertible Notes") due in October 2002. Opexa borrowed an additional $1,250,000
in Third Party Convertible Notes in 2002, of which $200,000 was in exchange for
a commitment for future consulting services and the balance of $1,050,000 was in
exchange for cash. During 2002, Opexa utilized $160,688 of the commitment for
future services.
All of the convertible notes bore interest at the rate of 10% per annum, which
was payable at maturity. Opexa incurred interest expense of $27,194 and $13,958
under these notes during the period from inception (February 16, 2001) to
December 31, 2001 and the year ended December 31, 2002, respectively. In
connection with the notes, Opexa issued warrants to acquire 800,000 shares of
Common Stock, of which Baylor received warrants to acquire 100,000 shares (see
Note 8). During April 2002, the principal and accrued interest on the Third
Party Convertible Notes and the Baylor Convertible Notes were converted into
1,632,919 shares of Series A Preferred Stock (see Note 7).
NOTE 6 - INCOME TAXES
Deferred income taxes are computed using the asset and liability method, such
that deferred tax assets and liabilities are recognized for the expected future
tax consequences of temporary differences between financial reporting amounts
and the tax basis of existing assets and liabilities based on currently enacted
tax laws and tax rates in effect for the periods in which the differences are
expected to reverse. Income tax expense is the tax payable for the period plus
the change during the period in deferred income taxes. Valuation allowances are
established when necessary to reduce deferred tax assets to the amount expected
to be realized.
EXHIBIT 99.1
During fiscal 2003 and 2002, Opexa incurred net losses of $2,788,905 and
$2,225,309, respectively. Therefore, Opexa has no tax liability. The net
deferred tax asset generated by the loss carry-forward has been fully reserved.
The cumulative net operating loss carry-forward is approximately $5,743,948 at
December 31, 2003, and will expire in the years 2021 through 2023.
At December 31, 2003, deferred tax assets consisted of the following:
2003
------------
Deferred tax assets $ 1,952,942
Less: valuation allowance (1,952,942)
------------
Net deferred tax asset $ 0
============
NOTE 7 - STOCKHOLDERS' DEFICIT
COMMON STOCK
In connection with its formation, during February 2001, Opexa sold to its
founding stockholder, an affiliate of Baylor, 200,000 shares of Common Stock for
$0.01 per share. Additionally, during September 2001, the affiliate of Baylor
acquired an additional 100,000 shares of Common Stock for $0.01 per share.
During September 2001, Opexa sold 200,000 shares of Common Stock to its Chief
Executive Officer. Of such shares, 160,000 shares are subject to certain
repurchase rights that expire over a four-year period ending February 2005, and
certain of such repurchase rights lapse upon the occurrence of certain events,
as defined in an employment agreement. At December 31, 2002, 86,667 shares were
subject to repurchase.
During September 2001, Opexa sold 20,000 shares of Common Stock to a Director
for $0.01 per share. These shares were subject to certain repurchase rights that
expired over the one-year period of the Director's service.
In connection with the license of technology from Baylor, during September 2001,
Opexa issued 1,700,000 shares of Common Stock to Baylor, of which 850,000 was
transferred to two founding scientists who were employees of Baylor. The Common
Stock issued was valued by Opexa at $.01 per share. Additionally and
contemporaneously with the execution of the license, Baylor purchased 100,000
shares of Common Stock for $.01 per share.
Of the 850,000 shares issued to founding scientists, 478,125 shares issued to
one scientist are subject to certain repurchase rights. In the event that such
scientist ceases consulting services or breaches certain non-competition
provisions, Opexa has the right to repurchase a portion of such shares for $.01
per share. This repurchase right expires ratably over the three-year period
ending September 2004. At December 31, 2002, 278,907 shares were subject to
repurchase.
During March 2002, Opexa's Chief Executive Officer exercised an option to
acquire 200,000 shares of Common Stock at $0.10 per share. All of such shares
are subject to certain repurchase rights that expire over the original four-year
period of the option ending December 2005. At December 31, 2002, 150,000 shares
were subject to repurchase.
During March 2002, a Director exercised an option to acquire 20,000 shares of
Common Stock at $0.10 per share. All of such shares are subject to certain
EXHIBIT 99.1
repurchase rights that expire over the original two-year period of the option
ending December 2003. At December 31, 2002, 10,000 shares were subject to
repurchase.
During March 2002, an employee exercised an option to acquire 5,208 shares of
Common Stock at $0.01 per share.
During 2003, an employee exercised his options to acquire 20,000 shares of
Common Stock at $0.125 per share. During 2003, a consultant also exercised his
options to acquire 10,417 shares of Common Stock at $0.01 per share.
SERIES A PREFERRED STOCK
During April 2002, Opexa issued 5,923,549 shares of Series A Preferred Stock for
cash and upon conversion of indebtedness. Of such shares, Opexa sold 4,080,000
for $1.25 per share in cash. Additionally, 210,630 shares were issued to an
affiliate of Baylor upon conversion of the principal balance of notes payable of
$250,000 and related accrued interest of $13,288, 209,000 shares were issued to
Baylor upon conversion of the principal balance of notes payable of $250,000 and
related accrued interest of $11,250, 1,262,542 shares were issued to others upon
conversion of the principal balance of notes payable of $1,550,000 and related
accrued interest of $28,178, and 161,377 shares were issued to a service
provider upon conversion of the principal balance of notes payable of $200,000
and related accrued interest of $1,720. During May and June 2002, Opexa sold
852,763 shares of Series A Preferred Stock for $1.25 per share in cash.
Opexa incurred offering costs of $150,586 in connection with the issuance of
Series A Preferred Stock.
During 2003, Opexa sold 28,037 shares of Series A Preferred Stock for $1.25 per
share in cash. Opexa incurred offering costs of $2,400 in connection with the
issuance of Series A Preferred Stock.
Each share of Series A Preferred Stock is convertible at any time at the option
of the holder into Common Stock. Each share of Series A Preferred Stock is
convertible into one share of Common Stock. The conversion rate of the Series A
Preferred Stock is subject to adjustment for certain dilutive events, including
the sale of Common Stock or securities convertible into or exercisable for
Common Stock at a price per share less than the then-existing conversion price
of the Series A Preferred Stock. However, such dilutive events exclude certain
sales of Common Stock issued or issuable to officers, directors, employees and
consultants.
Each share of Series A Preferred Stock shall be automatically converted into
Common Stock, at the then-applicable conversion rate, upon the affirmative vote
of at least two-thirds of the outstanding shares of Series A Preferred Stock or
in the event of an underwritten public offering of the Common Stock of Opexa
with an offering price of at least $3.00 per share and offering proceeds of at
least $25 million.
At any time on or after March 28, 2008, the holders of the outstanding shares of
Series A Preferred Stock may require Opexa to redeem such shares over a
three-year period at a price of $1.25 per share, plus declared but unpaid
dividends. If Opexa fails to redeem such shares, the holders of the majority of
the shares of Series A Preferred Stock have the right to elect a majority of the
Board of Directors.
The holders of Series A Preferred Stock are entitled to receive dividends of
$0.10 per share on a non-cumulative basis when and as declared by the Board of
Directors.
Upon liquidation, the holders of Series A Preferred Stock shall receive a
preferential amount per share equal to $1.25, plus declared but unpaid
dividends,
EXHIBIT 99.1
and then shall share ratably with holders of Common Stock in any remaining
assets of Opexa.
WARRANTS TO ACQUIRE COMMON STOCK
In connection with Third Party Convertible Notes and the Baylor Convertible
Notes, Opexa has issued to the lenders warrants to purchase up to 700,000 and
100,000 shares of Common Stock, respectively, at a price of $1.25 per share. The
warrants expire in April 2005 if not previously exercised.
NOTE 8 - STOCK OPTION PLAN
In 2001 Opexa adopted the 2001 Stock Option Plan ("the Plan"). The Plan provides
for the granting of stock options to employees and consultants of Opexa. Options
granted under the Plan may be either incentive stock options or nonqualified
stock options. Incentive stock options ("ISO") may be granted only to Company
employees (including officers and directors who are also employees).
Nonqualified stock options ("NSO") may be granted to Opexa's employees and
consultants.
Options under the Plan may be granted for periods of up to ten years and at an
exercise price equal to the estimated fair value of the shares on the date of
grant as determined by the Board of Directors. The vesting schedule and term of
each grant is determined by the Board, and vesting is generally over three to
four years.
Summary information regarding options is as follows:
Weighted
Average
Options Share Price
------- --------
Granted 330,000 $ 0.08
------- --------
Outstanding at
December 31, 2001 330,000 0.08
Year ended December 31, 2002:
Granted 25,000 0.13
Exercised (225,208) 0.10
Forfeited (10,000) 0.01
------- --------
Outstanding at
December 31, 2002 119,792 0.07
Year ended December 31, 2003:
Granted 683,000 0.13
Exercised (30,417) 0.10
Forfeited (44,375) 0.01
------- --------
Outstanding at
December 31, 2003 728,000 $ 0.07
======= ========
EXHIBIT 99.1
Options outstanding and exercisable as of December 31, 2003:
--Outstanding-- Exercisable
Number Remaining Number
Exercise Price of Shares life of Shares
-------------- ---------- --------- -----------
$ 0.010 50,000 8 years 16,347
0.125 678,000 4-10 years 94,994
---------- ----------
728,000 111,341
========== ==========
NOTE 9 - LICENSE AGREEMENT
Opexa is the exclusive worldwide licensee of certain technology developed at
Baylor. In exchange for this license, Opexa issued 1,700,000 shares of Common
Stock to Baylor, which in turn distributed 850,000 of such shares to two
scientists who were employees of Baylor (see Note 7). Opexa must reimburse
Baylor for the cost of patent filings fees and legal fees related to such patent
applications. In addition, Opexa must pay a royalty based on net sales in the
event that the technology is developed commercially. The license has customary
conditions and events of default. Opexa is granted rights to certain
improvements to the licensed technology if Opexa funds at least $150,000 in
research conducted by Baylor. As of December 31, 2003 and 2002, Opexa has funded
$59,923 and $76,954, respectively, of such research.
NOTE 10 - RELATED PARTY TRANSACTIONS
Opexa incurred indebtedness to Baylor and an affiliate of Baylor, each of whom
is a stockholder of Opexa (see Note 5). Opexa also issued Common Stock to Baylor
in connection with the license of technology (see Note 7).
During 2002, Opexa agreed to provide financial and personnel support to Baylor
for a physician-sponsored trial (the "Baylor Trial") being conducted by Baylor
using the technology licensed to Opexa. In connection with this commitment,
Opexa paid $16,197 during 2002 as support for the cost of Baylor employees
involved in the trial, and incurred expenses for laboratory materials and
supplies of approximately $117,000, substantially all of which was related to
the Baylor Trial. Certain of Opexa's employees devoted substantial portions of
their time to assisting with Baylor Trial.
Opexa engaged Baylor to conduct research on improvements to the licensed
technology, and committed to fund up to $136,876 of such research. During 2003
and 2002, Opexa recognized $59,923 and $76,954, respectively, in expense related
to such research.
Opexa engaged two directors as consultants, and incurred $28,333 and $180,000 in
expense during the period from inception (February 16, 2001) through December
31, 2001 and the year ended December 31, 2002, respectively. Additionally, Opexa
has engaged a founding scientist, who is also the spouse of a director, as a
scientific consultant, and incurred $16,667 in expense during the year ended
December 31, 2002.